How to validate a For Sale by Owner sales numbers can be a challenge for buyers. A For Sale by Owner listing is a person that decided instead of hiring a Restaurant Broker; chose to represent themselves.
People decide to represent themselves as a For Sale by Owner for several reasons: they don’t want to pay a commission, think the restaurant sales process is simple, and lastly, the clueless restaurant owner that educates themselves on Google.
EATS Restaurant Brokers provides 3 Ways to validate For Sale by Owner sales numbers:
1st-Request a copy of Sales Tax Filings–This represents the gross sales amount the restaurant owner reported to the state government. Restaurant owners who keep accurate books and records pay the correct amount owed for sales tax.
Independent-owned restaurants have many restaurant owners who do not report the correct amount of gross sales to reduce their sales tax bill. Restaurant buyers should only look at the amount reported to State Government.
Sales Tax filings amount can fluctuate from state to state. The statewide sales tax rate is 4% in Georgia, but local rates typically vary from 7-8% (4% for state, plus an additional 3 or 4% for local).
2nd-Request a copy of Tax Returns filed with the IRS, confirm tax returns are the correct ones reported to state government. Tax Returns provide vital information regarding the Gross sales and net profit of a restaurant.
Dominique Maddox, a Restaurant Broker for EATS Restaurant Brokers, says, “I would recommend requesting a Request for Transcript of Tax Return(Form 4506-T) form. Filing this documentation allows the buyer or bank to request tax returns directly from the IRS.
I have experienced instances were the tax returns provided to the buyer did not match the tax returns the IRS had on file”.
3rd-Request a copy of the POS Sales report– The POS Sales report can help buyers understand and simplify the restaurant sales breakdown.
4th- Count the number of customers during peak hours– This is the least recommended method for confirming a For Sale by Owner’s financial numbers. Some buyers like to visit and sit around for a while to monitor the customer traffic count and buying habits.
EATS Restaurant Brokers Tips when buying a restaurant from a For Sale by Owner:
- Inspect the equipment during the due diligence period. Confirm that the restaurant owner owns the equipment and is not leasing it or the landlord owns it.
- Make sure the closing attorney does a UCC lien search days before the closing.
- Ask Restaurant Seller to provide a Sales Tax Clearance Letter before closing.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at [email protected]. Visit our website at www.EATSbroker.com.
